April 22 (Bloomberg) -- OGX Petroleo & Gas Participacoes,
the oil company controlled by billionaire Eike Batista, surged
the most in over four years after Folha de S.Paulo reported OAO
Lukoil is in talks to buy a 40 percent stake in the company.

OGX, based in Rio de Janeiro, rose 18 percent to 1.61 reais
at the close in Sao Paulo, the biggest gain since Sept. 30,
2008. Batista’s CCX Carvao da Colombia SA coal unit and MMX
Mineracao & Metalicos SA mining company rose more than 3
percent. OGX was the biggest gainer on the Bovespa stock index,
which rose 0.7 percent.

Lukoil, Russia’s second-largest oil producer, is in
advanced talks to buy a 40 percent stake in OGX in May, Sao
Paulo-based newspaper Folha reported yesterday. Batista has
sought partners to raise cash to bid for oil blocks in
northeastern Brazil next month as failure to meet production
targets led OGX to plunge more than 60 percent this year.

The Folha report is “groundless,” OGX said in e-mailed
response to questions yesterday. Lukoil spokesman Vladimir
Semakov declined to comment when contacted by text message
yesterday.

OGX is also negotiating a separate sale of a 40 percent
stake in its Tubarao Martelo field to Malaysia’s state-owned oil
and natural gas producer Petroliam Nasional Bhd. for $1 billion,
a person with direct knowledge of the matter said last week.

“Selling assets would be one of the ways for the companies
of the group to recover,” Ari Santos, an equity trading manager
at Sao Paulo-based brokerage H. Commcor, said by phone. “If
that happens, it would automatically alleviate the company’s
cash position.”

Cash Holdings

The oil producer’s cash holdings fell 42 percent last year
to $1.7 billion in December, while it plans to spend $1.3
billion in projects this year. The company had to shut two of
its three oil producing wells last month after pump failures. It
will resume output at one of the wells in mid-May and the other
in mid-June.

Yields on OGX’s bonds due in 2018 fell a record 2.52
percentage points to 19.88 percent.

OGX shares on loan rose to 258.6 million on April 19, or 21
percent of estimated free float, the third-highest proportion
among companies on the Bovespa index, according to data compiled
by Bloomberg. The amount of loaned stock surged more than
fourfold in the past 12 months.

In so-called short selling, traders sell borrowed stock,
anticipating the price will drop so they can profit by buying
back the shares at a lower price.